What Australia’s top GCs are telling us

15 February 2013

The idea that recessionary periods accelerate the pace of change is not new – in fact recent research from The Corporate Strategy Board suggests that companies are 143% more likely to lose or gain in industry rankings during a downturn. What is less clear is: What are the key underlying trends that are driving the change in the legal industry? And, what should legal teams be doing to respond to them?

After conducting substantive research with over 80 Australian General Counsel’s and industry experts Plexus identified the ‘five forces changing legal’ and isolated how leading General Counsel’s are developing ‘The Legal Function of The Future’. This research has since been shared with our GC Thought Leaders Group – comprising GCs of 24 of Australia’s largest organisations, including GCs from companies such as Optus, Macquarie, CUB, Newcrest, Australia Post, CSL, Rio Tinto and Telstra.

The Five Forces Changing Legal

The pace of change is increasing, increasing risk and driving up workloads, as a result General Counsels are racing to isolate the most relevant trends and respond. Some of these changes are purely short term or behavioural and so can largely be ignored, others are more systemic and must be responded to. Through our research and discussions with over 80 top General Counsel, Plexus has isolated the five most systemic ‘forces’, below:

The Regulatory Tsunami:

In 2012 the Gillard government produced 6363 pages of new legislation – a record for the Australian’ government. However, the volume of legislation is not what concerns most GCs or their internal clients. They recognise that whilst the issues that are driving the global regulatory agenda will converge (e.g. privacy, corruption, financial services reform) the response of regulators appears increasing fragmented and driven by local political agendas. Interpreting, navigating (and in some circumstances profiting from) this regulatory complexity will consume an ever-increasing proportion of legal resources; and may support an elevation of legal and compliance functions that respond successfully.

The ever-tightening legal budgets:

As we enter the sixth ‘post GFC’ year most in-house teams recognise that budgetary pressure is the new normal. What is more surprising, in this stage of the cycle, is that General Counsel are increasingly pessimistic about budget relief. Whilst in 2011 55% of GCs forecast budget growth, today an overwhelming majority (84%) predicts their budgets will remain the same or shrink.

The Rise of Corporate Data:

Research by the CIO Executive Board suggests that today there is approximately .07 of a zetabyte (700,000,000,000,000 bytes) of information globally; it is forecast that this will increase to 20 zetabytes of information by 2020. Whilst this increase in data will no doubt have some implications for legal – particularly when performing activities such as Search & Discovery– it is not the volume of data the most concerns leading GCs.

It is the sources and destinations of the data that keeps GCs up at night. On the sources side of the equation many GCs seem most concerned that a high proportion of corporate related data will be generated outside of the corporate firewall on platforms such as social media. However, the more forward thinking amongst them recognise that social media is just a magnifier for the perennial ‘information management’ challenge.

When we turn to the ‘destination’ side of the data challenge, the concerns seem centred the issues surrounding the increased use of ‘The Cloud’ or offshore data centres. Of the 139 GC polled in a recent U.S. survey 85% rated IT related risks as very important or important.

From Key Business Facilitator to Strategic Business Partner:

The desire for legal functions to become ‘strategic’ is not new. However, there is a feeling among expert commentators that many legal functions pay ‘lip service’ to being ‘strategic’. In a poll of our GC Thought Leaders only 20% of them actually had a documented strategic plan for their functions. Certainly very few of them could point to how they have specifically allocated resources to support organisational strategy. As functional cost pressure remains, GC will be forced to make informed trade-offs about what decisions their functions will and won’t support, and communicate how this allocation will support organisational objectives.

The Transformation of the Australian Legal Market:

Much has been written about the ‘internationalisation’ of the Australian Legal Services market. An economic rationalist would suggest that this trend would drive greater competitiveness, ultimately pushing down law firm fees and increasing service. However, a contrarian perspective, supported by many of our GC Thought Leaders, suggests the opposite affect. Australian firms will be forced to reconcile the significantly higher profit per partner (PPP) expectations of the (predominately UK based) counter-parties in the merger. To achieve this ‘rebalancing’ they will have two alternatives: reduce the number of equity partners (thereby presumably reducing service levels) or increase fees charged to large corporate clients.

As a result of this, along with the other trends our GC Thought Leaders are increasingly interested in the innovative legal service models appearing in this space. Whether that be organisations like Plexus, offshore alternatives or technology solutions. These GC’s recognise the Australian legal industry lags the U.S. dramatically in the adoption of Alternative Legal Providers (ALPs). Over 57% of U.S. legal functions have used ALP services (and over 95% of them rate the satisfaction levels as ‘very high’), while less than 5% of Australian legal functions surveyed have used alternatives. One thing that remains certain, with continued budgetary pressure and a drive for efficiency in the delivery of legal services, this space is set grow in Australia. According to Gartner the ALP market in the U.S. grew at 43% last year.